Rau Paenga Limited v CPB Contractors Pty Limited
[2023] NZHC 3329
•22 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-002246
[2023] NZHC 3329
UNDER the Arbitration Act 1996 and Part 19 of the High Court Rules 2016 BETWEEN
RAU PAENGA LIMITED
Applicant/Respondent
AND
CPB CONTRACTORS PTY LIMITED
Respondent/Applicant
Hearing: 21 November 2023 Appearances:
A R Galbraith KC, J K Stewart and R Muston for RPL S W P Foote KC and J K Goodall KC for CPB
Judgment:
22 November 2023
Reissued:
23 November 2023 (r 11.10)
JUDGMENT OF VENNING J
Re: Application for leave to appeal
This judgment was delivered by me on 22 November 2023 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: MinterEllisonRuddWatts, Auckland
Lindsay & Francis, Auckland Counsel: A R Galbraith KC, Auckland
S W P Foote KC/J K Goodall KC, Auckland
RAU PAENGA LTD v CPB CONTRACTORS PTY LTD [2023] NZHC 3329 [22 November 2023]
[1] In the judgment issued on 24 October 2023,1 the Court made orders restraining the respondent, CPB Contractors Pty Limited (CPB) from, in reliance on the default notices issued to the Engineer to the Contract on 4 September 2023:
(a)requiring the Engineer to suspend the contract work under cl 14.3.3 of the Contract; and
(b) terminating the Contract under cl 14.3.3 until further order of the Court or arbitral tribunal.
[2] CPB now applies for leave to appeal the judgment. Rau Paenga Limited (RPL) opposes the application for leave.
[3] The background to the issues between the parties is set out in the judgment at [3]–[14]. It is unnecessary to repeat it here for the purposes of this application.2
Application for leave to appeal
[4] CPB is required to obtain the leave of this Court to pursue an appeal against the judgment as it was made on an interlocutory application.3
[5] The rationale for the requirement for leave is that it serves as a filtering mechanism, ensuring that neither unmeritorious appeals of interlocutory orders nor appeals against insignificant interlocutory orders are allowed to proceed so as to delay unnecessarily the proceedings in which the orders are made.4 The threshold for leave may be lower in respect of a judgment that in a practical sense finally determines a proceeding or has a substantive effect on a party’s rights.5
1 Rau Paenga Limited v CPB Contractors Pty Limited [2023] NZHC 2974 (the interlocutory decision).
2 The references to paragraphs in this decision are references to the paragraphs in the interlocutory decision.
3 Senior Courts Act 2016, s 56(3).
4 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
5 D v RMC [2023] NZHC 1931; and Simons v ANZ Bank New Zealand Ltd [2022] NZHC 2842 at [7].
[6] In Tomar v Tomar the Court of Appeal set out the principles governing the grant or refusal of leave as:6
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of such general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
CPB’s arguments for leave
[7] CPB refers to a number of arguable errors of law to support its application for leave. It says:
(a)the Court erred in finding as a matter of contractual interpretation, CPB was obliged to await the Engineer’s determination of the dispute and/or arbitrate a disputed notice before it could suspend or terminate under cl 14.3.3 of NZS 3910:2013;
(b)the Court gave insufficient weight to authority that a mandatory injunction should not generally be granted to require a party to continue to perform a building contract (the mandatory injunction point);
(c)contrary to the Court’s own recognition that it should be “reluctant to express views on the merits, or take steps that might be seen as intruding on the arbitrator’s domain”, the Court trespassed into the merits of the parties’ dispute (the merits point);
6 Tomar v Tomar [2021] NZCA 419 at [6].
(d)the Court erred in finding any harm to RPL could not adequately be compensated in damages (adequacy of damages – RPL point);
(e)the Court erred by taking purported harm to third parties into account (third party harm point);
(f)the Court erred in finding an arbitration could be focused on whether the notices complied with cl 14.3.1(f), such that the process should be able to be resolved within months (the arbitration process point);
(g)the Court erred in finding that if there are substantive delays in the arbitration process it will be open to CPB to seek to revisit the matter (the reservation of leave point); and
(h)the Court erred in finding the harm to RPL in the form of further delays, which were not adequately reparable by damages, outweighed the harm to CPB (the balancing issue point).
[8] CPB argues there is significant private and public interest which support leave being granted, in particular:
(a)its private interest – (potentially hundreds of millions of dollars are involved);
(b)the public interest in the context of the construction industry in interpretation of the standard terms in NZS 3910:2013; and
(c)public interest generally in commercial contracts.
RPL’s response
[9]RPL opposes the application. It says:
(a)the proposed grounds of appeal fail to recognise the principles that guide the Court’s jurisdiction in applications for interim measures under arts 9 and 17–17B of sch 1 to the Arbitration Act 1996.
(b)The issues that CPB proposes to appeal are essentially moot. The Court no longer has a role to play in this matter.
(c)The proposed appeal has no or no reasonable prospect of succeeding:
(i)The grounds of appeal are substantially founded on a proposition that a notice of default cannot be disputed. That is wrong at law.
(ii)RPL did not seek a mandatory injunction or specific performance of the contract.
(iii)The Court correctly concluded RPL had a reasonable possibility of success on the merits of its claim.
(iv)The Court did not err in finding the harm to RPL could not be adequately compensated in damages.
(v)The Court was entitled to take into account the harm to interested third parties.
(vi)The Court was correct in its determination regarding the process of arbitration under the contract.
(vii)It was open to the Court to find that the harm to RPL if interim relief was not granted would be substantially more than the harm to CPB if the relief was granted.
[10] RPL further says that the interests of justice are not served by the grant of leave. The costs to the parties does not justify the appeal on public or private interest grounds where the Court no longer has a role to play.
CPB’s submissions
[11] Mr Foote KC noted that, while the proposed grounds for leave were all relied on and were interdependent to some extent, the principal issue that CPB seeks leave to appeal on is that the judgment has the effect that, properly construed, the construction contract based on NZS 3910 requires the parties to submit disputes about the lawfulness of a default notice to the Engineer and to arbitration before purported rights to suspend or terminate are exercised.7 He submitted that was novel and in error. Rather the correct position is that recognised in the Channel Tunnel case.8 A party is entitled to suspend or terminate but it takes the risk that an arbitrator may later find it was not entitled to do so. Damages then follow the event.
[12] Mr Foote submitted the status quo was not the continuation of work on the project by CPB, rather it was the correct application of the parties’ respective contractual arrangements as agreed to by them and recorded in the contract. He further submitted that the suggestion in [90] that the matter could be reviewed by the arbitrator during the course of the arbitration process was incorrect and/or unrealistic. The arbitrator would be being asked to second-guess the decision of the Court which would likely lead to a review before this Court again.
[13] Mr Foote then submitted there was a substantial private interest in the case given the quantum involved hundreds of millions of dollars. It was a very significant matter for the parties. He also submitted that there was also public interest in the context of the construction industry given the case concerned the interpretation of provisions in the standard construction contract NZS 3910:2013. It impacts on the issue of whether a contractor or principal can suspend, terminate or otherwise cease work under a construction contract without going through the arbitration process.
[14] Mr Foote submitted the judgment has had a substantive effect on the parties’ contractual rights. It is not a procedural decision, and leave should be granted.
7 Rau Paenga Ltd v CPB Contractors Pty Ltd [2023] NZHC 2974, at [54], [59], [60] and [91].
8 Channel Tunnel Group Ltd v Balfour Beatty Constructions Ltd [1993] AC 334 (HL).
Analysis
[15] The principal argument in favour of granting leave is that the judgment requires the parties (to this contract and to NZS 3910 generally) to submit disputes to the arbitration process in the contract before suspending or terminating the contract, and in doing so the Court misconstrued the Channel Tunnel case. I return to that issue below. But first I address the remaining suggested errors of law which can be dealt with shortly.
The mandatory injunction point
[16] As CPB acknowledges, the Court was aware of the need for caution before ordering a party to continue with a construction contract. CPB takes issue with the weight accorded to that principle. At [33] the judgment referred to the passage from the Channel Tunnel Group in which Lord Mustill acknowledged that it was:
[p]ossible for the court at the pre-trial stage of a dispute arising under a construction contract to order the defendant to continue with performance of the works. But the court should approach the making of such an order with the utmost caution, and should be prepared to act only when the balance of advantage plainly favours the grant of relief.
[17] Strictly speaking, the Court did not order CPB to continue with performance of the contract works. The Court granted a quia timet injunction which preserved the status quo pending determination of RPL’s challenge to the default notices by the Engineer. I accept that it had the effect that CPB could not suspend or terminate the contract in reliance on the default notices until the validity of those notices was tested by the Engineer but a challenge as to the weight placed on an acknowledged consideration does not support leave being granted.
The merits point
[18] The Court did discuss the merits of the dispute despite CPB’s concession of an arguable case. But while CPB did concede an arguable case then, in submissions, it did not confine itself to that concession. CPB’s counsel addressed the merits in quite some detail. It was necessary to address those submissions.
Adequacy of damages – RPL point
[19] This raises an issue as to the assessment of the evidence before the Court. It was open to the Court on the evidence before it to conclude that RPL was “likely to sustain harm which cannot adequately be reparable by an award of damages”.9
Third party harm point
[20] The discussion of the authorities at [78]–[81] of the judgment supports the conclusion that, while a Court or arbitral tribunal will exercise considerable caution before going beyond the considerations specifically set out at art 17B(1), the Court is not constrained as a matter of law from considering the position of third parties from doing so in an appropriate case.
The arbitration process point
[21] Ultimately this was again a matter of assessment of the evidence. Subsequent developments support the Court’s assessment. As confirmed by the affidavit of Ms Aimer, the Engineer has now determined the issue concerning the validity of the notices. He was able to do so within the 20 working days provided. It is now for CPB to take that issue to arbitration. It will be up to the parties and the arbitrator as to how long the arbitration process determining the validity of those notices will take. I also note counsel for RPL’s advice that on 30 October 2023 a separate arbitral tribunal released an award in relation to one of the “defaults” alleged by CPB. The parties are bound by that finding.10
The reservation of leave point
[22] Such orders are common. It was open to the Court to make one in this case. The reservation of leave potentially could work in CPB’s favour. It is noted the reservation extended to both the Court and the arbitral tribunal.
9 At [76].
10 Clause 13.4.7 of the Construction Contract.
The balancing exercise point
[23] That was a matter of assessment based on the evidence before the Court. The finding was open on the evidence.
[24] I conclude that none of the above points taken individually or collectively support the grant of leave.
The principal point
[25] As noted, the real issue is whether there is an arguable question that the Court was in error in its construction of the contractual provisions and in its application of the principles from Channel Tunnel.
[26] The context is particularly relevant, both in terms of the statutory framework under which the application for injunction came before the Court and also what was in issue between the parties.
[27] On the general background issue, art 9 of sch 1 to the Arbitration Act 1996 provides jurisdiction for the Court to grant interim measures before (or during) an arbitral proceeding. The purpose is to act in aid of the arbitral process the parties have agreed to. In Pathak v Tourism Transport Ltd the Court observed:11
[40] Article 9(1) of the First Schedule to the Act makes it clear that an application for interim relief from a Court is not to be regarded as incompatible with the arbitral process. In effect, the Court is requested to act in aid of and to assist the arbitral process by ordering interim measures of protection which an arbitral tribunal, cannot, for practical or legal reasons, order.
[28] In the present case an arbitral tribunal had not been established so the Court was effectively asked to act to aid the arbitral process the parties had agreed to. As this Court noted at [40] of the judgment, in the Channel Tunnel case, Lord Mustill noted:12
The purpose of interim measures of protection, … is not to encroach on the procedural powers of the arbitrators but to reinforce them, and to render more
11 Pathak v Tourism Transport Ltd [2002] 3 NZLR 681.
12 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd, above n 8, at 365.
effective the decision at which the arbitrators will ultimately arrive on the substance of the dispute. Provided that this and no more is what such measures aim to do, there is nothing in them contrary to the spirit of international arbitration.
[29] I agree with Mr Galbraith KC’s submission that properly analysed, the underlying rationale of the Channel Tunnel decision was to support the dispute resolution process the parties had chosen and provided for, consistent with the approach this Court took on the application before it. The interim orders were sought to prevent CPB suspending or terminating the contract before the Engineer had issued a determination on the dispute that had been referred to him.
[30] There is a conceptual difficulty with the applicant’s case for leave on this point. The Court was considering an application under art 17(a) to maintain the status quo and was required to apply art 17B(1). The points raised by CPB as to the construction of the contract and the application of the Channel Tunnel case are principally relevant to the consideration at 17B(1)(c) of whether there was a reasonable possibility that RPL would succeed on the merits of its claim. But that was, as noted, conceded by CPB. As such, the Court’s reasoning on that point could strictly be regarded as obiter.
[31] Next, while I accept that from a practical point of view the interlocutory decision has had a substantive effect on CPB’s right to suspend or terminate the contract based on the default notices, I do not accept the impact of the judgment on the construction of NZS 3910 is potentially as wide-ranging as Mr Foote suggests in his submission. The background to the application and the orders sought were the particular defaults referred to in the default notices issued by CPB under cl 14.3 of the contract. The contractual provision provided for CPB (the Contractor) to notify the Engineer of RPL’s (the Principal’s) default (14.3.1) and if the default was not remedied within 10 working days CPB could require the Engineer to suspend the progress of the whole of the contract under 6.7 and following such suspension CPB was entitled to terminate the contract by giving notice in writing to RPL. However, once RPL raised a dispute under cl 13.1.2 of the contract then it was for the Engineer to give a formal decision within 20 working days on the matter in issue under 13.2.4.
[32] The orders made by the Court were limited to preventing CPB from relying on the particular notices issued and that were subject to determination by the Engineer.
The Court’s order was no broader than that. It does not purport to nor could it bind CPB’s rights in relation to cancellation generally or in relation to other matters that may arise in the future outside the scope of the current default notices. Indeed I understood that to be acknowledged by counsel in submissions for RPL.
[33] Underlying CPB’s position on this application for leave is the same proposition that underlay its application for the Court on the injunction hearing, namely that it should be entitled to terminate and then, if ultimately proved wrong, it will simply pay damages. However, the parties established a process under the construction contract (which they voluntarily entered) to deal with disputes. CPB relied on cl 14.3 to issue the default notices. Once it did and RPL engaged the dispute provisions under cl 13.1.2 the issue of the validity of the default notices was before the Engineer (initially) for determination.
[34] CPB effectively says the dispute resolution process under the contract will take too long to be completed. In part that will be up to CPB as to how it approaches the arbitration, but as Lord Mustill said in the Channel Tunnel case:13
The parties here were large commercial enterprises, negotiating at arms length in the light of a long experience of construction contracts, of the types of disputes which typically arise under them, and of the various means which can be adopted to resolve such disputes. It is plain that clause 67 was carefully drafted, and equally plain that all concerned must have recognised the potential weaknesses of the two-stage procedure and concluded that despite them there was a balance of practical advantage over the alternative of proceedings before the national courts of England and France. Having made this choice I believe that it is in accordance, not only with the presumption exemplified in the English cases cited above that those who make agreements for the resolution of disputes must show good reasons for departing from them, but also with the interests of the orderly regulation of international commerce, that having promised to take their complaints to the experts and if necessary to the arbitrators, that is where the appellants should go. The fact that the appellants now find their chosen method too slow to suit their purpose, is to my way of thinking quite beside the point.
[35] For similar reasons this Court found CPB to be bound to the dispute resolution process in the contract and the injunction was issued to support that process.
13 At 353 (emphasis added).
[36] In terms of the interests of justice overall it is also relevant that the matter is effectively moot inasmuch as the Engineer has now ruled against CPB on this issue. It is in the hands of CPB to progress an arbitration if it wishes to challenge that determination. As it stands, with the Engineer having ruled against CPB, it cannot rely on the default notices to suspend or terminate the contract in any event.
[37] While I accept there are significant private interests involved in the contract, at the end of the day damages can be paid to CPB if RPL is ultimately held to be in breach. Indeed that is the position CPB argues for but from its own perspective. It says damages will be a sufficient remedy.
Result
[38] For the above reasons and in the particular circumstances of this case CPB fails to satisfy the Court that there is a sufficiently arguable prospect of success on a relevant point for leave to be granted. CPB also fails to satisfy the Court that it is in the interests of justice for leave to be granted. The application for leave to appeal is dismissed.
Costs
[39]Costs to RPL on a 3B basis, one counsel certified for.
Venning J
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